When selling or purchasing a new home, individuals often do not think to hire an attorney to assist with the transaction and review the key legal documents. Generally, it seems that consumers tend to rely solely on real estate agents to assist with the transaction. Although we absolutely recommend hiring a real estate agent when buying or selling a home, we also recommend using a trusted legal professional to review the documents prior to the execution of any agreements with the agent or the other parties to the transaction.
The sale of real property is a legal transaction that has very specific requirements. All sales require a purchase agreement, which is a legally binding contract whereby the seller agrees (and becomes contractually bound) to sell the property to the purchaser under the particular terms of that purchase agreement. Oftentimes, standard form purchase agreements fail to address key issues in the transaction as they do not contemplate the particular agreement between the parties. For example, many standard form real estate purchase agreements fail to include what is known as a “risk of loss provision” which designates who is liable for any potential loss to the property during the period between the execution of the purchase agreement and the closing. If, for example, the property burns down the day before closing, there should be adequate provisions to address what would happen and how that unfortunate event would be handled.
Another example of a key provision that is often missing from a purchase agreement is a provision to address what happens if the property does not appraise for the purchase price or higher. If the sale requires financing through a mortgage, this provision becomes particularly relevant. Mortgage lenders typically will not lend for the purchase of property if the sale price is higher than the appraised value. There are equitable ways to address this scenario, such as readjusting the purchase price or allowing the parties to rescind the contract.
As stated above, once the purchase agreement is signed, it is a legally binding contract and typically can only be amended by an additional signed writing between the parties. Therefore, the time to negotiate the contractual provisions is before the agreement is signed. In order to avoid disputes after the fact, we highly recommend having an attorney review the purchase agreement, explain the key provisions, and indicate whether any major provisions are missing. Given the magnitude of most real estate transactions, the failure to do so often creates catastrophic results for one party, or simply creates costly litigation between the parties.
Beyond the purchase agreement, the review of the closing documents by an attorney prior to closing is also an important step. The closing documents – specifically the deed conveying the property to the buyer, closing statements, and title commitment – are what transfers and guarantees title to the property. It is imperative that the deed is one hundred percent accurate in order to ensure there are no title discrepancies or disputes in the future. As a purchaser, it is also extremely important to have an adequate title insurance policy to ensure that if a title dispute arises in the future, there will be insurance to cover that issue. Again, once the closing documents are signed, they are legally binding. The time to have them reviewed for accuracy by an attorney is prior to the closing.
Residential real estate transactions often reflect an individual’s biggest investment and can be an exciting and emotional time. In order to ensure the transaction goes smoothly, it is important to protect this investment by hiring a qualified attorney, in addition to other chosen real estate professionals, to assist with the buying or selling process.